Gates’ move to reduce military spending will affect major military contractors, including Boeing Co. (NYSE: BA), Northrop Grumman Corp. (NYSE: NOC), Lockheed Martin Corp. (NYSE: LMT), General Dynamics Corp. (NYSE: GD), and Raytheon Co. (NYSE: RTN).

Analysts have noted that the defense sector is being priced as if a sharp decline in the budget will occur. One potential savior of the industry may be that many of these companies aren’t solely reliant on defense spending and have diversified into other areas and industries.

For more information on the defense industry, visit our aerospace & defense category. Currently, both aerospace and defense ETFs are below or just sitting on their long-term trend lines. As this situation plays out, watch the lines and sign up for alerts to be notified of trading opportunities.

  • iShares Dow Jones U.S. Aerospace & Defense (NYSEArca: ITA)

  • PowerShares Aerospace & Defense (NYSEArca: PPA)

Max Chen contributed to this article.